Analyze Tax Saving Investment under 80C with MATLAB

Hey. This is the time of the year when all Tax Payers who have not done anything during the entire year start thinking about the best way to save tax. This post will discuss various investment options under Section 80C in India for Tax Saving. The article will only be helpful for the Indian context. Still, it can be taken as a study reference for MATLAB's practical use by anyone worldwide. I will involve MATLAB's graphic computation power to make up my points. So let's get started!

Disclaimer: This article aims to increase awareness for education and research purposes and is not a piece of financial advice. I am not an expert in Stock Market, Mutual Funds, or Tax Saving Investments. I wish to display some plots derived from data with my own subjective opinions. The data has been retrieved from ValueResearch.com, a separate entity with its own policy. Check them before using any service!        

Question: What are Tax Saving Investment Options under 80C? What is their annual rate of return? What is their lock-in period or tenure?

Response: ELSS (Equity Linked Saving Scheme) & NPS (National Pension System) Returns are Market-Linked;?I have taken category average of direct plans for 5 years period ending on 18th Jan'22; I have used the data from ValueResearch.com

NPS Tier1 Equity Plans returned 16% RoR (Rate of Return);

NPS Tier1 Corporate Bond Plans returned 8% RoR;

NPS Tier1 Govt Bond Plans returned 8% RoR;

For comparison, I am taking the mean of the above RoR

In NPS, Lockin is till Retirement Age. For comparison purposes, I am assuming a 30-year aged person investing with retirement age 60, so tenure/lock-in will be 30 years;

For PPF (Public Provident Fund), SSY (Sukanya Samriddhi Yojana) returns are of Jan to Mar'22 quarter and revised every quarter;

Returns of NSC (National Savings Certificate), Five Year Post Office FD, Five Year Bank FD, SCSS (Senior Citizen Saving Scheme) are fixed, and the RoR is for Jan to Mar'22 quarter with subject to revision every quarter;

For 5 Year Bank FD, I have considered deposit at State Bank of India as of 18th Jan 2022

Let us describe all this in short within MATLAB and display it in a tabular format!

%% Tax Saving Investment under Section 80C

Option = {'ELSS';'NPS';'PPF';'SSY';'NSC'; '5YPOFD';'5YBankFD';'SCSS'};

RoR = [18;mean([16,8,8]);7.1;7.6;6.8;6.7;5.4;7.4];

Lockin = [3;30;15;21;5;5;5;5];

investment = table(Option,RoR,Lockin);

disp(investment)
        

Question: Which Tax Saving Investment has the Best Rate of Return?

Response: Let us visualize the figure generated in MATLAB with the following code:

X = categorical(Option);

figure(1); b1 = bar(X,RoR);?grid on; axis padded;

title('Tax Savings vs Rate of Return')

xlabel('Tax Saving Investment under Section 80C');

ylabel('Rate of Return %');

xtips1 = b1.XEndPoints;

ytips1 = b1.YEndPoints;

labels1 = string(b1.YData);

text(xtips1,ytips1,labels1,'HorizontalAlignment','center',...

???'VerticalAlignment','bottom')        

The returns under ELSS are best, but they are linked with the share market. Due to several reasons like Interest Rate Hike, Ukraine-Russian War, etc., the share market has gone downhill in recent months. Suppose you are the person who can afford these turbulent times, i.e., high volatility of ups and downs in the short term. In that case, Equity is suitable for you, and ELSS becomes the best option for you in Tax Saving Investment. NPS Tier1 Equity Plans also provide nearly the same Rate of Return but depending upon the allocation to Equity & Debt, your RoR would also come down, as you see with the mean value of NPS in the table.

Question: Which tax-saving investment locks my money for the largest period?

Response: Let us again see this with MATLAB figure:

figure(2); b2 = bar(X,Lockin,'red');?grid on; axis padded;

title('Tax Savings vs Lockin Period')

xlabel('Tax Saving Investment under Section 80C');

ylabel('Lock-in Years');

xtips2 = b2.XEndPoints;

ytips2 = b2.YEndPoints;

labels2 = string(b2.YData);

text(xtips2,ytips2,labels2,'HorizontalAlignment','center',...

???'VerticalAlignment','bottom');        

NPS is your post-retirement benefits, i.e., pension. So it depends on your age and retirement year. In my example, I had considered 30 year old with 30 years left for retirement, which is why you see the bar chart showing the peak for NPS. SSY and PPF are also the two tax-saving investments with an extensive lock-in period. ELSS has the least lock-in period of 3 years.

Question: Which is the best Tax Saving Investment option for me?

Response: Let us see a combined version of the Return & Lockin period with MATLAB first!

Y = [RoR'; Lockin'];

figure(3); b = bar(X,Y);?axis padded;

xtips1 = b(1).XEndPoints;

ytips1 = b(1).YEndPoints;

labels1 = string(b(1).YData);

text(xtips1,ytips1,labels1,'HorizontalAlignment','center',...

???'VerticalAlignment','bottom')

xtips2 = b(2).XEndPoints;

ytips2 = b(2).YEndPoints;

labels2 = string(b(2).YData);

text(xtips2,ytips2,labels2,'HorizontalAlignment','center',...

???'VerticalAlignment','bottom')

yticks([]);

title('Tax Saving Investment under Section 80C')

legend('Rate of Return', 'Lockin Period');        

Suppose you do not understand much of Equity and are a Real-Estate guy. In that case, you will have to factor in several parameters to decide the best tax-saving investment. There is no ready-made answer for you. Suppose you are a Senior Citizen eligible for investment under SCSS. In that case, SCSS is the best option for you without any risk involved (Sovereign Guarantee is really cool 99.99%). If you are ready to experiment with Equity or accept the market's volatility, go with ELSS, which works wonderfully in lock-in and its market-based returns. Historically, if you put money systematically with SIPs for 5 years or more and only see the price each month and forget about daily movement, you would see that the market has always returned handsomely. Even during the fall of 2008 or any significant downturn like COVID'19, the market would have provided you a good return if you had been consistent with your investment during the last 60 months. What happened in the past is not going to happen in the future, but it gives you a trend that you can follow. It all comes down to your preference for the best tax-saving investment!

Okay, that's basically all I wanted to answer in this article. I will keep my tradition of posting some To-Dos for you if you're going to try them in MATLAB:

Find any ELSS fund with a history of 10 years+ and get its historical data. Now find RoR for:

1. Any 3 Year-Period starting from inception date up to 3 years back
2. Any 5 Year-Period starting from inception and going till 5-year-old date
3. Any 7 Year-Period starting from inception and going till 7-year-old date.

I hope you will find my article resourceful. I would be happy to answer any questions you might have. If I have missed some investment options, please enlighten me with your comments. Which investment option do you recommend someone? I look forward to your codes/solutions/response/suggestion in comments. You can also get in touch with me at [email protected]

PS: Follow GG’s Journal and Read my previous articles to see how I have evolved over time!

Happy MATLABing!